Last month the Government unveiled its proposal for delivering Fair Pay Agreements (FPA) in New Zealand. The concept is simple – the ability for employers and employees across an entire occupation, industry or sector to bargain for an FPA that creates new minimum standards for that group.

Annie Newman, Assistant National Secretary of E tū, has recently claimed that various commentators have misrepresented the FPA framework. She makes the case for sector-wide bargaining as a way to re-establish national standards of decent work and to enable industries to compete on the quality of the service rather than the cost of labour.

While there may well be merit in the concept of levelling the playing field and giving employees and unions a stronger voice in bargaining, the reality is that there are still significant gaps in terms of how the system will work in practice. 

In particular, Newman says that all employers and employees will have the opportunity to be involved in bargaining for an FPA, but the reality is likely to be very different.

In practice, once an FPA is initiated, the union will be obliged to notify employers and other unions within the coverage of the FPA. For example, if an FPA is initiated for cleaners, all unions representing cleaners and all employers employing cleaners will need to be notified.

But in practice this can only extend to employers and unions which the first union knows about. Notified employers must notify other unions and notified unions must notify other employers that they are aware of as being within coverage. MBIE will also publish a notice of the initiation.

Despite this phone-tree type system, it is easy to imagine that there will be some, or even many, employers who do not receive direct notification or become aware of MBIE’s published notice. There is no one database or register of employers within most industries or occupations – such as a database that can extract the details of all employers of cleaners to ensure that they can be notified of the initiation.

This means that there will be employers who are not made aware of the initiation of an FPA and will not be involved in the bargaining or ratification of that FPA, but will nonetheless find themselves bound by the terms and conditions of the deal. The employees of those employers will likely be similarly unaware of the FPA and similarly unable to participate in the process.

Yet another challenge is how FPAs are going to sit with the range of existing collective agreements that will be in place across a workforce. An FPA will set minimum terms and the result will be to lift any term in a collective agreement that is below those terms.

Given that collective agreement terms are generally negotiated as a package, there is a significant issue with the concept that FPA minimum terms can be inserted into the existing collective agreement to replace some terms but not others. In effect, employees will receive the best terms from both their existing collective agreement and the FPA.

Take for example an employer who has a collective agreement which provides for a lower base rate of pay in return for a high overtime rate. This is a negotiated trade off. The setting of a minimum base rate in an FPA (if higher than in the collective agreement) will result in the employer being required to apply the higher base rate as well as the already agreed high overtime rate. Again, the current proposal for the FPA system will enable employees to receive the best of both.

Ratification is another area where the proposed framework has obvious flaws. Currently employers will receive one vote per employee but with a slight weighting of up to 2 votes per employee for employers with under 20 staff. In practice this will mean that large employers particularly those with thousands of employees, will totally drown out the voices of smaller employer’s.

This creates a significant risk for small businesses that terms will be imposed on them that they simply cannot afford, and inevitably some will be driven out of business.

Although the Government’s intention in introducing FPAs is to improve wages and conditions for employees, encourage businesses to invest in training, and level the playing field, the proposed system is cumbersome and likely to involve significant challenges in implementation. If these issues are not carefully considered and addressed, the system may create more injustices than it resolves.